Wednesday, September 10, 2014

Japanese Yen Heading For Hyperinflation

The Yen is down more than 4% in the last month against the dollar.

The 10 year Japanese Government Bonds (JGBs) pay 0.54%.   So losing 4% in value is about like losing 8 years worth of Interest.   If you can lose 8 years worth of reward in one month, the risk and the rewards are way out of whack.

The demand for JGBs is very low.  Many of the buyers are really just front running the central bank.   The central bank has driven some rates below zero.  Investors and traders are happy to hold bonds while interest rates are going down because the value of the bonds goes up.  With interest rates below zero, it is time to get out. 

In the Aug 31 report from the Central Bank of Japan, they had increased their balance sheet by 1.1% in the previous 10 day period.   This is printing money at hyperinflationary rates.

I think Japan is falling into the grip of the positive feedback loops of hyperinflation.  It does not make sense for investors to roll over JGBs.   As people don't roll them over, the central bank becomes more and more the only buyer.  But it is buying with newly made money which makes holding bonds an even worse investment.  The more new money, the less people will want to hold JGBs or the Yen.   But the less people hold, the more the central bank will make money to buy JGBs.   Seems like the death spiral is starting to circle for the Yen.

A big part of the last month change is really that the US dollar has gone up.  So one could argue that it is not the Yen going down but really the dollar up. 

Right now Great Britian may be losing part of their tax base to independence.  If Scotland leaves, Northern Ireland may follow.   The Euro has gone even more crazy with printing money.  So maybe it is that the Pound, Euro, and Yen are all going down and not that the dollar is really going up.

If an expert saw water coming through a gopher hole in an earth dam he could tell you for sure that the dam was going to fail very soon.  Once the positive feedback loop for dam failure starts, it is just a matter of time.  I wish I was such an expert that I could tell you for sure that the positive feedback loops for Yen hyperinflation have started, I really think so,  but I can't tell you for sure.

Full disclosure:  Author is short Yen.


  1. Here's an alternate explanation.

    A follow on piece to this one, in which Jason surmised that perhaps the VAT tax increase from 5% to 8% might explain the jump.

    Apparently recent data has not altered his view.

    Did you see Sumner's recent piece on inflation? You might be interested:

    Also, Jason agrees that you and he see avalanches in opposite directions:

  2. Also, this one was amusing:

    Mish didn't like it:

    I suspect you won't like either. And I'll probably disagree with all three of you. :D. Personally I can't understand what Tamny is talking about. I don't agree with Mish, but Tamny is very confused I think. However he is consistent. He said the same thing (in 2 pages) back with his "Ron Paul and Fractional Reserve Banking" article. I've seen almost the same article from him years ago, only more succinct. I think that he believes that money is to banks as library books are to a library: you might swipe your bank card some day to pay for something and a little message comes up saying "Sorry! someone's using your dollars right now. You'll have to wait until somebody checks some back in."

  3. BTW, Jason responded:

    (Funny, but sometimes my browser gets screwed up and I cease to be able to copy addresses from the address bar... thus I end up pasting whatever I last pasted instead: I almost pasted this as a link to Jason's response... Lol that would have left you scratching your head I bet)

    1. Thanks. Answered him back. Yes, I appreciate the correct links. :-)

    2. Seeking alpha picked up my "Krugman's Missing Model" and a number of places copied it from there but I am still waiting for Krugman to respond. Dream on, eh? :-)

    3. In "Ask Cullen Anything" I asked if he would put that post on his site, since Krugman has responded to stuff from his site. So far he has not. :-)

    4. Keep after it... who knows what will happen.

      ... re: the link: scratching your head, or worse!... One hell of a response, eh!?

  4. Couldn't happen to a better US lapdog who BTW was and is intimately involved in the gold shakedown.

  5. Someone else who thinks the Japanese central bank becomes the only buyer of JGBs and the Yen collapses.

  6. The yield on 10-year JGBs has gone from 0.49% to 0.57% in the last month. This is kind of a big move.

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